Latvian Shipping Company (hereafter – LSC) and its subsidiaries (hereafter – LSC Group or Group) unaudited net loss in 2011 was LVL 24.9 million (USD 49.70 million) which is three times less than in 2010 when LSC had net loss of LVL 78.4 million (USD 142.44 million).

Simon Blaydes, Chairman of the Management Board argues that situation of the LSC should be viewed in a wider context of global shipping industry: „Given the very difficult financial environment the global shipping market remains very challenging. Ship-owners in all market segments are experiencing severe liquidity problems. LSC has also been exposed to these difficult conditions but has been cushioned from the worst effects with a majority of the fleet being employed on time charter thus ensuring a more predictable income stream.”

In both 2011 and 2010 a considerable amount of the net losses relates to the impairments, provisions for which are required to be made according to the International Financial Reporting Standards. The impairment provisions made in 2011 are as follows: (1) assets held for sale (3 older handy size vessels), in the amount of USD12.56 million; (2) total fleet value adjustment, in the amount of USD15.08 million; (3) value adjustment of investment in real estate properties in the amount of USD1.29 million.

This result reflects the difficult financial situation that ship-owners continue to experience in 2011, yet again, recording historically low market rates. The reasons for this are varied and complex but the main factors are less demand for oil products caused by the global economic downturn especially within the more developed western economies coupled with an increase in the number of new tankers. Prior to 2008 strong global economic growth stimulated demand for shipping and this encouraged the construction of new tankers. The consequence of this increase in vessel supply and current decrease in demand is lower earnings for ship-owners.

Simon Blaydes, Chairman of the Management Board is cautiously optimistic about the future development of Latvian Shipping Company: „However there are some signs for optimism for the product tanker market. The level of recent closures of uneconomic refineries in Western Europe and the USA is likely to increase demand for oil products which will need to be supplied by the more modern refineries that have been built, and will continue to be built, in the middle and far-east. Additionally, economic growth in emerging economies, for example South America and Africa, is also expected to increase demand for product tankers.”

Blaydes indicates that according to the current economic environment, and with less banking finance available, that fewer product tankers will be built. This should help to improve the current in-balance between the number of product tankers and product movements.

At the end of 2011 the fleet under the commercial management of LSC Group consisted of 20 tankers. During 2011 the Group took delivery of two new build tankers, the “Latgale” and the “Zemgale” ordered in 2007 from “Hyundai Mipo Dockyard Co., Ltd” shipyard in Korea and sold the 17 year old vessel “Indra” for scrap. Further, LSC has reclassified three of its oldest vessels as assets for sale in order to ensure sustainable financing for the remaining fleet.

In 2011 total net voyage result from shipping was USD87.99 million (2010 - USD88.31 million) and shows stabilization in income. Vessel operating profit was USD 15.24 million, a 21% improvement on the previous year (2010 - USD12.69 million), however, the operating profit did not cover the fleet financing expenses (USD20.27 million).

At December 31, 2011 the total value of the LSC Group assets was USD650.30 million. The previous year the figure was USD680.47 million. The decrease is mainly attributed to the impairment provisions as explained above. The total value of the LSC Group fleet has decreased from USD570.50 million to USD508.05 million and in addition to the impairment provisions also reflects depreciation. The total equity value of the Group at December 31, 2011 was USD265.64 million (2010 - USD313.18 million).